No, buying a life insurance policy isn’t going to increase your pension benefit checks. But there is a legit strategy for using life insurance as a way to get the most of your pension.
Let me share a recent experience with you…
Meet Darren and Leigh
Darren came to me the other day for advice on his pension. He turns 65 this year and plans to retire not long after. But Darren has a dilemma. His employer is offering him two options (we’ll round-up the dollars here to keep it simple):
1. Darren can take $3,000 every month for the rest of his life,
2. Or he can take $2,300 every month for the rest of both his and his wife’s life.
“I really like the idea of continuing to provide for my wife, Leigh,” said Darren, “but I want to know if it makes financial sense for our retirement plan.”
Let me tell you a little about Darren’s and Leigh’s situation:
• They’re both in great health
• Leigh is 66, already retired, and draws an income from her 401(k) and Social Security benefits
• Neither have included life insurance in their retirement planning
I agreed with Darren that anything we can do to provide for our loved one’s security is usually worth considering. So, I taught him about a strategy used by many married couples for getting the most of a pension.
Making the Most of Your Pension with Life Insurance
Let’s say you were to make Darren’s choice. Which pension benefit would you choose?
Well, what if there was a way to continue providing for your spouse while drawing $2,500 instead of $2,300?
Darren could choose to take his full $3,000/month pension, buy the largest permanent life insurance death benefit he could get for $500/month, and Leigh could use the policy’s death benefit to generate income in his absence.
On the other hand, if Darren was to outlive his spouse, he could simply cancel the policy and continue receiving the $3,000 monthly pension.
Because Milestone is an independent firm, we aren’t limited to a single insurance company’s offerings. So, I was able to find for Darren a life insurance policy with a death benefit of about $275,00 for a monthly premium of $500. With his good health, he had no problem qualifying.
Sounds great, right?
While it worked perfectly for Darren and Leigh, the life insurance alternative isn’t right for everyone.
Is the Life Insurance Alternative Right for Your Pension Plans?
No one solution works in every situation – that’s why I advise my clients to ignore the financial industry blowhards and their “brilliant solutions.” And while the life insurance alternative is a simple, commonsense strategy that doesn’t rely on gimmicks, there are a few caveats to consider:
• There’s always the possibility you may not qualify for life insurance.
• You could qualify for life insurance but, because of your medical history, maybe the death benefit for your desired premium amount isn’t substantial enough to make it worth doing.
• Your life insurance policy could lapse if premiums aren’t paid on time.
• To generate income from the death benefit, your spouse must properly manage the funds.
If you think a life insurance policy might be the answer for boosting your own pension, then by all means look into it. However, I recommend first making sure that you qualify for life insurance, and then deciding on how large of a death benefit is right for your situation.
And I advise you always consult with a qualified financial professional before making any decisions that affect your retirement.